Students voted disproportionately for Barack Obama in 2008, and Obama, as president, reciprocated by nationalizing the student loan program that allowed private banks to offer government-insured loans ("Sallie Mae"). The federal government now issues about 85 percent of student loans. And he more recently pushed Congress to keep the interest rates on those loans from going up to the rate Congress had planned at the time of nationalization.

But this has only intensified a problem inherent in this program from its inception: moral hazard. It has proven powerful at inducing rationally self-interested people to behave badly – in this case, to pile up debt pursuing degrees that are often of dubious worth.

Recent reports confirm that this exercise in moral hazard is accelerating, and its unintended consequences are becoming harsh.

To begin with, the student debt load has skyrocketed. There are now more than 3 million households with debt of more than $50,000, an almost four-fold increase over a decade ago (in inflation-adjusted dollars), and 10 times higher than in 1989. And the debt is rising most quickly among the upper-middle-class households.

Because taxpayer-backed student loans cannot be discharged in bankruptcy, an especially worrisome unintended consequence has emerged: Student loan debt is hurting Americans entering into retirement. The Treasury Department has recently confirmed that it is garnisheeing seniors' Social Security income for unpaid student loans. And this practice is growing: Only six seniors had student loan debt payments withheld from their Social Security checks in 2000; by 2007 it rose to 60,000 seniors; and it hit a record 115,000 seniors last year.

This number will rise even more rapidly as the nearly 80 million baby boomers retire ever more rapidly. Already there are 2.2 million people 60 years or older who are student loan debtors, and about a 10th of them are in arrears.

Some older people are carrying this debt because they went to college later in life, but more often it is because they agreed to take out loans to help their children or other dependents go to college – and their kids aren't paying them back.

Considering that nearly half the people ages 48 to 64 won't have saved enough to cover their basic needs in retirement, they will be in a parlous position to tolerate the average 15 percent the government impounds to cover loan payments.

This problem figures to become even more acute for the post-boomer generations, because they are even deeper in debt. People in their 20s and 30s have collectively compiled a staggering $600 billion in student loan debt, about 60 percent of the total. The average student loan amount grew from $9,300 in 1993 to $28,700 last year, as college tuition rates have ballooned.

In short, the government attempted to "help" students by eliminating private lenders and pumping up the loans. The result is a swelling tide of aging citizens with problematic debt, that threatens to hurt their retirements because the debt cannot ever (at least under present law) be wiped clean in bankruptcy. And 85 percent of these loans are government-backed, putting the taxpayer at risk.

Moreover, this flood of money is very likely the major reason why tuition rates have risen so dramatically. The college administrators know that the students can borrow the money, so they raise their tuition rates to capture the available loan money (and use the extra revenue to hire more costly administrators).

We need to start winding down the government-backed student-loan business. Put a time limit – say, four more years – of student loan guarantees, then just end it, and privatize Sallie Mae. Let student loans be like auto loans, namely, contracts between private banks and individuals, who retain the right to declare bankruptcy should they get deeply in trouble.

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